April 21, 2020

The Coronavirus and Commercial Contracts (Force Majeure)

As the coronavirus (more correctly described as COVID-19) continues to spread towards the shores of sunny South Africa, the day-to-day lives of millions of people across the world have already been severely (and in some cases, irreversibly) impacted. We have already seen numerous reports of manufacturing facilities (particularly in China) being closed, imports and exports (both current and future) being delayed or cancelled and new product launches being postponed.

It is against this backdrop that the force majeure (or vismajor) clause, routinely included in “boilerplate” provisions of commercial contracts, is once again receiving special attention. While there is no universal or internationally agreed form of a force majeure clause, these clauses often operate to relieve parties to a contract from liability or obligation when an extraordinary event or circumstance, beyond the control of the parties, prevents one or both parties from fulfilling their obligations. In practice, most force majeure clauses do not excuse a party's non-performance entirely, but only suspend it for the duration of the force majeure event.

In South Africa, as well as many other parts of the world, these clauses evolved from the inherent “shortcomings” in the common law principles relating to impossibility of performance arising from circumstances beyond the control of the parties. In terms of common law principles, for example, a circumstance which made it more expensive to perform (such as an unexpected rise in the cost of raw materials, transport costs or even extreme movements in currency exchange rates), or one which was within the control of one of the parties (e.g. a strike or lock-out) would not excuse performance.

Modern contracts take a more pragmatic and robust approach to the principles underlying force majeure clauses. It is therefore not uncommon for these clauses to be drafted to include a wide array of incidents and events such as strikes, lock-outs, commercial hardship and other events that the parties agree meet a standard of "impracticability" – meaning  that it would be, if not necessarily impossible,unreasonably burdensome, impractical and/or expensive to perform contractual obligations.

The anticipated arrival of the coronavirus has many people asking whether an epidemic (or a global pandemic) excuses (or will excuse) performance of their contractual obligations. While there is no simple, single correct answer to this question (as each force majeure clause will have to be considered on its own merits), most modern, competently drafted force majeure clauses will be wide enough to excuse performance (at least temporarily) of contractual obligations due to the effects of the coronavirus.

Finally, please bear in mind that there may be other implications to invoking the provisions of a force majeure clause and that you should consult your attorney before doing so. Should you have any concerns or queries, please contact our Corporate and Commercial Department.